Bottoms Up in the Stock Market

The major stock indexes are at a low.  An upside reversal is due.  The Russell 2000 and the S&P 600 may be leading the way.

The stock market and the major Indexes have taken a terrible beating over the past several days.  Investors are at the point of throwing in the towel, which in my estimation would be a mistake now, because our Indicators and the Japanese Candlestick price formations in the Dow Industrials Index and in the S&P 500 Index suggest that prices are coming into a low and that an upside reversal is due.  Furthermore, the Candlestick formations of the Russell 2000 Index and of the S&P SmallCaps 600 Index suggest that, in those Indexes at least, the turn has already come and that their prices are in line for a substantial upward correction.  So in that regard, the Russell and the 600 may be leading the pack.

I think that the correction which is in store could be quite substantial.  This will not equate to a reversal of major trend, which remains Down; but its imminence ought to be enough to dissuade disillusioned shareholders from selling now.  The right time to sell, unfortunately, was a year ago; but that’s water under the bridge.  The correct action right now would appear to be to wait for the correction to take hold and then to assume a selling stance as near to the top of the expected crest as possible.

In particular now, the Russell 2000 and the S&P 600 assumed Candlestick “piercing” patterns last Friday right at the bottom of the low.  Prices “pierced” quite substantially the price bars of the previous day.  I take those moves as strong suggestions that the move will continue upward into a meaningful upward correction until prices finally crest and  then turn down again in the major downtrend.

William Kurtz      October 12, 2008        

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